Wired! 1998 in Review

by Richard C. Insley, CRCM, President, APR Systems, Inc.

"Golden years" are times when the Internet is a net benefit to those who track and manage regulatory risks associated with online activities. Golden years began in 1995-before that, the Internet was more trouble than it was worth. Since 1995, however, access to the Internet has been cheap and convenient and your time online could be very rewarding.

The "five Rs" measure readiness (your ability to deal with the electronic world), regulations (applicable to your online presence), regulators (and their supervisory actions), risks (likelihood of e-violations), and rewards (e-freebies). This article discusses industry-wide measurements - yours may differ.

Readiness
By year end, most compliance pros were aware of the Internet and using it in one way or another. While their employers did not uniformly recognize the value of the wired CP, the percentage grew steadily. Successful arguments for access privileges included cost-benefit analyses such as:

I need access to the Federal Register, and
A paper subscription costs $550 per year, and
Internet access to the Federal Register is free if I have an Internet access account (AOL or a similar dial-up service), and
An unlimited Internet access account costs about $180 per year ($15 per month), therefore
I can do my job better, faster and cheaper if I have Internet access-I have to play to win!

Regulations
On March 25, the Fed proposed to log Regulations B, M, Z, and DD onto the Internet. The proposals would recognize "electronic communication" (a defined term) as equivalent to "written" or "in writing." Although brief and very simple, these proposals would revolutionize the impact of the major consumer protection regulations on web sites. Most significantly, electronic account opening disclosures would be permitted in lieu of paper. Final rules were not issued before year end.

Prompted by growing numbers of questions like "is the Internet a regulation-free place?", the regulators issued a guidance document on Internet compliance matters on July 15. The agencies used this communication to strongly recommend that every bank's compliance manager(s) should be an integral part of the web site development team. The document also called attention to a series of specific compliance issues, mainly dealing with electronic advertising. If you missed this guidance (warning), visit your regulator's web site for a copy.

Regulators
Toward the end of the second quarter, the FDIC was the first agency to kick off compliance examinations of bank web sites. All field examiners were trained to conduct these electronic compliance exams and familiarized with the current requirements of the various regs. Early results confirmed suspicions that Internet compliance is less than stellar. Fortunately, the examiners appear more interested in educating bankers about online compliance than taking a tough stance on enforcement. The sister agencies were rumored to be working on their own cyber-exam procedures, but there were no formal announcements by year end.

Risks
Cyber-compliance risks continued growing during the year-not because the regs grew or changed, but simply due to growth in the number and sophistication of web sites. By year end, more than one third of all banks had web sites and many others had begun using Internet e-mail for communications. In some parts of the country, almost every bank now has a web site. If your bank started or grew its web presence during the year, your risk profile for this delivery channel increased. Hopefully, you offset that higher risk with more time spent learning how to navigate your web site monitoring old pages for changes and reviewing new ones to assure full compliance.

Resources
Since 1995 the Internet has become a treasure chest of wonderful free stuff for CPs.

Up-to-date sets of banking regulations can be found at several web sites, including FDIC.gov. You can't dispose of that trusty CD-based regulatory library quite yet, but an impressive amount of regulatory material is now readily available online.

Several sites feature good access to the Federal Register-so good, in fact, that 1998 saw debates as to which site has the best features! You can now conduct extensive electronic searches of Federal Register content dating back several years. Results can be viewed and printed in the original three column Register format or as a plain text document. Cut-and-paste convenience allows you to grab key items from today's Register anytime after 6:00 AM Eastern.

ACTION STEPS

Visit the regulators' web sites. While you are there, download a recent document to show how useful access to the Internet can be. For example, go to www.ffiec.gov, click on recent releases, and find the new fair lending examination procedures.
Bookmark your regulator's CRA examination calendar. That way you can find out quickly when your bank's examination is scheduled.
Bookmark sites for the Federal Register. Practice using them - doing research - on slow days or weekends.